Accural And Prepayments

Question 1

What can accruals and prepayments apply to?

Answer 1

Income and Expenses

Accruals and prepayments can be applied to both income and expenses in accounting.

Question 2

In the ledger, where is the amount paid placed in the case of prepayments?

Answer 2

On the credit side

The amount paid for prepayments is recorded on the credit side of the ledger.

Question 3

How is prepaid rent recorded in the rental income account?

Answer 3

Taken out as a debit

Prepaid rent is debited from the rental income account.

Question 4

What type of account is prepaid rent considered?

Answer 4

A liability

Prepaid rent is a liability because it is not yet due and is owed back to the owner.

Question 5

What does the rental account show when balanced off?

Answer 5

Rental income for the year

The rental account will reflect the total rental income earned during the year.

Question 6

What is a provision for doubtful debt?

Answer 6

Debts unlikely to be paid

This provision accounts for accounts receivable that may not be collected.

Question 7

What types of debts can be included in the provision for doubtful debt?

Answer 7

Specific debts or a percentage of outstanding balances

The provision can be based on specific customer debts or a calculated percentage of all outstanding balances.

Question 8

When should revenues and profits be included in financial statements?

Answer 8

When they are realized

Only recognized revenues and profits should be included in financial statements.

Question 9

What must be made for unknown expenses or losses when they become known?

Answer 9

A provision for doubtful debts

It is necessary to create provisions when unknown debts become certain.

Question 10

How is the provision for doubtful debts entered into the ledgers?

Answer 10

Debit doubtful debt adjustment expenses, credit doubtful debts

This entry reflects the adjustment for doubtful debts in the accounting records.

Question 11

Is a debt removed from the sales control ledger when classified as doubtful?

Answer 11

No

Doubtful debts remain in the sales control ledger until they are confirmed as bad debts.

Question 12

What are the steps in the provision for doubtful debts?

Answer 12

1) Calculate total provision
2) Make journal entries
3) Adjust trial balance

These steps ensure that the provision is accurately reflected in financial statements.

Question 13

What must be calculated for the income statement regarding provisions?

Answer 13

Increase or decrease in provision

Adjustments to provisions affect the reported income in the financial statements.